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The Australian Quarrying Industry

Industry Analysis

Aggregates - Demand and Supply
Aggregates can be used on their own to provide the foundations for infrastructure such as roads and railways or mixed with binders to create construction materials like concrete and asphalt. People don’t normally buy aggregates directly, but rather the products or services they provide. The market for aggregates is therefore known as a ‘derived’ demand. Demand is ‘derived’ by the demand for the goods or services that aggregates provide.

As the majority of aggregates are used as inputs into construction materials for building and construction, their demand is driven largely by the level of activity within these industries. Forecasting demand for aggregates has traditionally relied on a time-series approach, based on historical consumption patterns and projected population levels. Over the shorter term, consumption can be volatile, varying with the level of local economic growth and building and infrastructure development. In Australia, Queensland for example, is showing an annual per capita demand of close to 10 tonnes whilst Tasmania is closer to 6 tonnes per person per year. Whilst per capita consumption of aggregates (presently estimated for Australia at about 7 tonnes per annum) remains a useful criterion to assist in the prediction of future aggregate demand, drivers of demand such as the amount of construction investment and intensity of use (tonnage of aggregates per unit of construction costs) also have potential as useful indicators to help with demand prediction and planning for supply.

Demand for aggregates is likely to continue at present levels and will most probably grow in the future with the development of infrastructure in both urban and regional Australia. Demand for rock-based products as inputs into buildings, for recreational facilities and environmental improvement projects is also increasing. Whilst extractive resources are widespread and remain in adequate supply nationally, shortages in some localised urban markets occur. In such urban areas, it is not so much unsuitable geology, but rather conflict from incompatible land uses and environmental problems caused by high rates of urban expansion that is leading to shortages of local supply. Natural sand and gravel resources are also being depleted and closed to extraction in some areas of Australia, leading to their partial substitution by hard rock which inturn generates higher depletion rates for these resources.

Most quarrying operations in Australia are subject to local government town planning controls. In many local governments areas there has been a failure to protect potential extractive resources and existing quarries against incompatible development from surrounding land uses. This failure has led to growing realisation within industry and government that state governments, in addition to local councils have an important role to play in ensuring regionally significant extractive resources are available to satisfy future regional community needs.

In urban areas, increasing land prices and amenity and environmental concerns of local communities has led to the establishment of new quarries further a field. This trend continues but is being tempered by a growing reluctance by some communities to become "satellite" quarrying precincts for other cities or urban areas. The additional economic, social and environmental costs of longer transportation distances are also influencing community sentiment. Similar dilemmas overseas have led to the development and application of the ‘proximity principle’ — local quarries satisfying local needs wherever possible —a principle which is likely to grow in planning importance in Australia. Community activism against quarries on amenity, health or philosophical grounds is growing and is increasingly impacting on the industry, particularly for new approvals. Increased industry and government efforts to communicate with both local and wider communities are warranted.

Recycling
Recycling of construction materials is increasing as more and more construction and demolition waste is recovered, prior to committal as landfill. Secondary aggregates in the form of excavations from civil infrastructure development, blast furnace slag, ash from coal fired power generation and waste rock from mining operations continue to augment the use of primary aggregates for some applications in some markets. Recycled aggregates are being used as substitutes for primary aggregates, particularly in metropolitan areas but generally only for lower performance applications like roadbases and select fills. As the supply of demolition waste depends largely on the rate of urban infrastructure renewal, itself dependent upon the utility (and often the age) of existing buildings and infrastructure, and waste rock from mines remains largely remote from high consumption markets, recycled and secondary aggregates in Australia are not expected, in the foreseeable future, to provide more than 10% on average of the total demand for aggregates.

Environmental Impacts and Sustainability
The quarrying industry as an extractive industry operating close to communities is necessarily subjected to scrutiny particularly in relation to noise emissions, airborne particulate air emissions and water quality. Each of the Australian States and Territories applies environmental legislation to quarrying operators that incorporates emission thresholds designed to prevent environmental harm and preserve human amenity. Australian States apply some of the most stringent noise (blast vibration) thresholds in the world. Demands on the further reduction of airborne particulate emissions are likely with the advent of the National Pollutant Inventory database and the evolution of national airborne particulate targets.

The application of principles of ‘sustainable development’ will increasingly impact on the quarrying industry triggering further initiatives in recycling and reduction of emissions and wastes. The application of ‘sustainable development’ principles also has potential to assist in the resolution of some land use conflicts by providing planning authorities with analytical frameworks that foster the preservation, rather than the alienation of natural resources like extractive materials. Quarrying buffer lands that provide not only separation distances from other land uses but also habitats to increase biodiversity, the improved valuing of extractive resources and innovation in the post extractive use of quarry lands are also likely to increase in importance under the application of sustainable development principles.

Industry Structure and Cost Drivers
Quarrying operators range from large publicly owned multi-national companies operating quarries throughout Australia but principally focussed in metropolitan and major provincial areas, to smaller privately owned operators (often referred to as ‘independents’) based within a state or provincial area through to sole traders and municipal quarries serving provincial towns and more remote rural markets. Australian construction materials companies have a high degree of vertically integrated businesses including quarrying operations, pre-mixed concrete, concrete products, cement and asphalt manufacture. Most companies operate substantial truck fleets. The extent of vertical integration, whilst less pronounced for smaller companies still frequently extends to ownership of both quarries and pre-mixed concrete plants.

Production costs are determined mainly by the cost of labour, equipment, energy as well as compliance with product specifications and environmental and safety legislation. These costs vary depending upon the nature of the deposit, the number and type of products and the degree of processing required.

The industry is highly competitive. Aggregates have shown a tendency to maintain or reduce in constant dollar price over the past 20 years, despite the rising costs of labour, equipment, energy, and more stringent product specifications, environmental and safety controls. Consumers and end users view aggregates and the construction materials made from them, largely as commodities. Opportunities for product differentiation are limited. Companies do focus on quality and customer service as a means to differentiate themselves, but essentially compete on price. A geographic location close to markets is highly advantageous.

The industry has responded to commoditisation and rising cost of inputs by adopting automation and more efficient plant and equipment within quarries and for transport of products. Economies of scale continue to be sought throughout the production operations within quarries, in transport of aggregates to markets, from ongoing reduction in fixed overhead costs, and by a move to larger quarries serving regional markets.

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